UK Inheritance Tax for Expats 2026 -- New Residence-Based IHT Rules

Last reviewed: 26 April 2026

UK inheritance tax abroad is now determined by how long you have lived in the UK, not by your legal domicile. From 6 April 2025, the Finance Act 2025 introduced a residence-based test for IHT: any individual who has been UK-resident for at least 10 of the prior 20 tax years is a "long-term UK resident" and faces UK IHT on their worldwide estate, including assets in Dubai, Portugal, Spain, Canada, Australia, or any other country. This is the most significant change to UK IHT in a generation and directly affects UK nationals who have lived abroad for years but retained UK ties, UK property, or UK family connections that kept them UK-resident. For context on the connected changes to income tax for non-doms and the abolition of the remittance basis, see our UK tax residency guide.

UK inheritance tax for expats previously depended on domicile -- a complex concept that remained UK for many British nationals even after decades abroad, unless they took deliberate steps to acquire a new domicile of choice. The domicile test gave HMRC a wide reach but was unpredictable and fact-intensive. The new residence-based test is more mechanical: 10 years of UK residence (regardless of domicile) triggers worldwide IHT exposure. Fewer than 10 years, or more than 10 years spent outside the UK after the 10-year threshold was reached, reduces or eliminates the IHT exposure on non-UK assets. For those managing offshore investments and estate planning as expats, see our UK expat investments guide for structuring options.

What changed for UK IHT for expats in April 2025?

The Finance Act 2025, enacted 20 March 2025, replaced the concept of UK domicile as the primary IHT trigger for non-UK assets with a 10-of-20-year residence test. Before April 2025, IHT applied to the worldwide estate of UK-domiciled or deemed-domiciled individuals; deemed domicile required 15 of the prior 20 years of UK residence (reduced from 17 of 20 years by Finance Act 2017). From April 2025, the threshold drops to 10 of the prior 20 years, casting a wider net. Critically, UK-domiciled individuals (those who would have been caught by the old IHT rules regardless of time spent abroad) are also now assessed under the new residence test -- if they have been UK-resident for fewer than 10 of the prior 20 years, their non-UK assets may fall outside IHT even if they remain UK-domiciled.

HMRC published transitional guidance in the IHT manual (updated April 2025) clarifying the position of individuals who were already deemed-domiciled under the old rules as of 5 April 2025: they are automatically treated as long-term UK residents under the new rules from 6 April 2025, without any additional assessment. Individuals who were non-UK-domiciled and not deemed-domiciled under the old rules (fewer than 15 of prior 20 years) are assessed under the new 10-of-20 test; those with 10 or more of the prior 20 years UK-resident become long-term residents from April 2025. The OBR estimated in the March 2024 Economic and Fiscal Outlook that the residence-based IHT change would affect approximately 20,000 estates per year once fully operational, with a static revenue increase of approximately £430 million per year by 2028/29.

The IHT tail: how long does UK IHT apply after leaving?

A long-term UK resident (10 or more of the prior 20 years in the UK) who leaves the UK does not immediately escape UK IHT on their worldwide estate. The Finance Act 2025 introduced a "tail" period during which the former UK resident remains within scope of UK IHT on non-UK assets. The tail length depends on how many years of UK residence the individual has accumulated. For individuals who were UK-resident for 10-19 consecutive years (not counting any gaps): the tail is four years after leaving. For individuals UK-resident for 20 or more consecutive years: the tail is 10 years. "Years" for this purpose are tax years; residence is assessed using the Statutory Residence Test (HMRC RDR1).

Practical example: a UK national who has lived in the UK for 25 consecutive years and moves to Dubai in April 2026 remains within UK IHT on their worldwide estate (including their Dubai property and UAE bank accounts) for 10 years after leaving -- until April 2036. During those 10 years, if they die, their worldwide estate is assessed for UK IHT at 40% above the nil-rate band. After 10 years outside the UK, the Dubai property and UAE bank accounts fall outside UK IHT; UK-sited assets (UK property, UK-held shares, UK bank accounts) remain within UK IHT scope permanently, regardless of how long the individual has been non-UK-resident, because situs determines IHT for UK-sited assets. This means UK nationals who own UK property -- even after selling UK assets and moving overseas -- should consider the IHT position of any retained UK property during the tail period.

Nil-rate band and residential nil-rate band in 2026

The IHT nil-rate band (NRB) has been frozen at £325,000 per individual since April 2009 and will remain at £325,000 until at least 5 April 2030 under the freeze announced in the Autumn Budget 2024. The residential nil-rate band (RNRB), introduced by the Finance Act 2016, provides an additional £175,000 per individual where a residential property (or its sale proceeds in a downsizing case) passes to direct descendants (children, grandchildren). The combined threshold for an individual is therefore £500,000 (£325,000 NRB + £175,000 RNRB) where a qualifying residential property is included in the estate. For married couples and civil partners, unused NRB and RNRB can be transferred to the surviving spouse; the combined threshold for a couple can be up to £1 million (2 x £325,000 NRB + 2 x £175,000 RNRB).

The RNRB is tapered for estates above £2 million: the RNRB reduces by £1 for every £2 of estate value above £2 million, eliminating the RNRB entirely at £2.35 million for a single person or £2.7 million for a couple using the full transferred RNRB. This taper is particularly relevant for long-term UK residents with worldwide estates above £2 million who have significant overseas property, investments, and pension funds now drawn into the IHT net by the Finance Act 2025 changes. The IHT rate on the chargeable estate (above the NRB and any available RNRB) is 40% on death; a reduced rate of 36% applies if at least 10% of the net estate is left to qualifying charities, per the Finance Act 2012 charity relief provision.

Excluded property trusts after the Finance Act 2025

Excluded property trusts (EPTs) were a widely used estate planning structure for non-domiciled UK residents before April 2025. Under the old rules, an offshore trust settled by a non-dom before they became deemed-domiciled held non-UK assets outside the scope of UK IHT, even after the settlor became deemed-domiciled. From 6 April 2025, this exclusion is removed: non-UK assets held in an EPT are subject to UK IHT charges if the settlor is a long-term UK resident at the date of the chargeable event (typically the settlor’s death or a 10-year anniversary charge on the trust). This change eliminates the most widely used IHT mitigation structure for wealthy non-doms who had become UK-resident long-term.

Existing EPTs that were set up before 6 April 2025 are subject to the new rules from that date; there is no grandfather clause for the trust structure itself, though HMRC has indicated that the position of individual assets already in the trust will be assessed at the time of the chargeable event and based on the settlor’s long-term resident status at that time. New trusts set up after 6 April 2025 by long-term UK residents gain no IHT excluded property status at all. The Finance Act 2025 also introduced changes to the periodic (10-year) and exit charges on trusts, aligning them with the new long-term residence framework. Trustees of EPTs with UK-resident settlors should have obtained advice before 6 April 2025 on the impact of these changes; HMRC’s updated trust periodic charge calculator reflects the new rules.

Business Property Relief and Agricultural Property Relief

Business Property Relief (BPR) and Agricultural Property Relief (APR) provide 100% or 50% relief from IHT on qualifying assets and remain broadly available under the Finance Act 2025, but with significant restrictions announced in the Autumn Budget 2024 (effective April 2026). From April 2026, BPR and APR are capped at a combined £1 million per individual on qualifying assets; above that threshold, the relief reduces to 50% (an effective IHT rate of 20% on the excess). This change affects farmers, business owners, and investors holding AIM-listed shares (which qualified for 100% BPR) with portfolios above £1 million. The £1 million combined BPR/APR cap is not transferable between spouses -- each individual has their own £1 million cap, meaning a couple can shelter up to £2 million of qualifying assets at 100% relief.

AIM shares that previously qualified for 100% BPR after a two-year holding period are now subject to the £1 million cap from April 2026. AIM-listed portfolios above £1 million are effectively taxed at 20% IHT on the excess from April 2026. This change significantly reduces the attractiveness of AIM portfolios as an IHT-efficient structure, and has contributed to substantial AIM market volatility since the Autumn Budget 2024 announcement. UK expats who hold AIM portfolios in UK-managed ISAs or general investment accounts should review their IHT position under the new cap, particularly where the worldwide estate including overseas assets has grown beyond the thresholds. For full details on investment structuring for UK expats, see our UK expat investments guide.

IHT planning for UK expats in 2026

Given the new rules, UK nationals who have been UK-resident for 10 or more of the prior 20 years and who are considering leaving the UK should do so with an understanding of the IHT tail. Departing in April 2026 after exactly 10 years of UK residence triggers a four-year IHT tail on non-UK assets (because consecutive years are fewer than 20). Departing after 20 or more consecutive years triggers a 10-year tail. Reducing the tail requires sustained non-UK residence; spending more than the SRT allowable UK days during the tail period resets the residence count and potentially restarts the tail calculation. Becoming UK-resident again during the tail period may reset the long-term resident status entirely if sufficient additional years are accumulated.

Legitimate IHT planning strategies within the rules include: making gifts of non-UK assets to non-UK-resident beneficiaries before death (potentially exempt transfers if made more than seven years before death under the seven-year rule); structuring non-UK assets through jurisdictions with bilateral estate tax treaties with the UK (the UK has comprehensive estate tax treaties with the USA, Ireland, France, Italy, India, Pakistan, South Africa, and a small number of other countries -- but not the UAE, Spain, Portugal or Australia); using spousal transfers where one spouse is not a long-term UK resident; and investing in UK assets qualifying for BPR up to the £1 million cap. Specialist UK estate planning advice is essential; HMRC’s IHT manual is the primary source, but the Finance Act 2025 provisions are complex and the interaction between the old domicile-based rules and the new residence-based rules for transitional cases requires careful professional analysis.

Reporting and compliance for UK IHT

UK IHT is reported by the personal representatives of the deceased’s estate using form IHT400 (Inheritance Tax account) for estates above the reporting threshold, or form IHT205/IHT217 for excepted estates. From April 2025, the reporting threshold for excepted estates where no IHT is due has been updated; estates where the deceased was a long-term UK resident must now include worldwide assets in the IHT400. The personal representatives have a duty to disclose all worldwide assets of a long-term UK resident; failure to disclose overseas assets is a serious offence under the Inheritance Tax Act 1984. IHT on the estate is due within six months of the end of the month in which death occurred; interest accrues at the HMRC late payment rate (currently Bank of England base rate plus 2.5 percentage points, as of April 2026) on unpaid IHT after the six-month deadline.

This article is for general information only and does not constitute tax, legal, financial or immigration advice. Rules and rates change; verify with the primary sources cited or consult a qualified adviser before acting.

FAQ

When did the UK IHT rules for expats change?

The UK IHT rules changed from 6 April 2025 under the Finance Act 2025, which replaced the domicile-based IHT test for non-UK assets with a residence-based test. From that date, any individual who has been UK-resident for 10 or more of the prior 20 tax years is a long-term UK resident and subject to IHT on their worldwide estate at 40% above the nil-rate band, regardless of their legal domicile.

How long does UK IHT apply after I leave the UK permanently?

The IHT tail depends on how many consecutive years of UK residence you have accumulated. If you have been UK-resident for 10-19 consecutive years, the tail is four years after leaving. If you have been UK-resident for 20 or more consecutive years, the tail is 10 years. During the tail period, your non-UK assets remain within scope of UK IHT on your death. UK-sited assets (UK property, UK-held shares, UK bank accounts) remain within UK IHT scope permanently regardless of residence.

What is the UK IHT nil-rate band for 2026?

The IHT nil-rate band is £325,000 per individual, frozen until at least April 2030 under the Autumn Budget 2024. The residential nil-rate band (RNRB) of £175,000 applies additionally where a qualifying residential property passes to direct descendants, giving a combined threshold of £500,000 per individual. For married couples and civil partners, unused NRB and RNRB can be transferred to the surviving spouse, giving a combined couple threshold of up to £1 million (including two full RNRBs). The RNRB is tapered out for estates above £2 million.

Are my excluded property trusts still IHT-free after April 2025?

No. The Finance Act 2025 removed the IHT excluded property status for non-UK assets held in offshore trusts where the settlor is a long-term UK resident (10 or more of the prior 20 years). Non-UK assets in such trusts are now subject to IHT periodic charges (every 10 years) and exit charges, and form part of the settlor’s estate on death. This eliminates the primary planning benefit of excluded property trusts for UK-resident long-term settlers. Specialist trust and estate advice is essential to review the current position of any EPT in light of the Finance Act 2025 changes.

Has Business Property Relief changed for expats in 2026?

Yes. From April 2026, BPR and APR are capped at a combined £1 million per individual at the 100% relief rate. Assets above £1 million qualifying for BPR/APR receive only 50% relief (an effective IHT rate of 20% on the excess). This cap significantly affects AIM share portfolios, which previously qualified for 100% BPR after two years regardless of value. Each individual has their own £1 million cap; it is not transferable between spouses. The cap was announced in the Autumn Budget 2024 and took effect from 6 April 2026.

Is there a UK-UAE double tax treaty covering IHT?

No. The UK does not have a comprehensive estate or IHT treaty with the UAE. UK IHT therefore applies in full on the worldwide estate of a long-term UK resident who dies owning UAE property or bank accounts (during the IHT tail period). The UAE levies no inheritance tax or estate duty. This means there is no foreign tax credit available for UK IHT purposes on UAE assets -- the full UK IHT charge at 40% above the nil-rate band applies to UAE assets within scope during the tail period. The UK has estate tax treaties with the USA, Ireland, France, Italy, India, and a small number of other countries, but not with most expat-popular destinations.

Sources

1. Finance Act 2025 -- full text (legislation.gov.uk) (verified 26 April 2026)
2. HMRC -- Inheritance Tax Manual (updated April 2025) (verified 26 April 2026)
3. OBR -- Economic and Fiscal Outlook March 2024 (IHT estimates) (verified 26 April 2026)
4. HM Treasury -- Autumn Budget 2024 documents (verified 26 April 2026)
5. HMRC -- Statutory Residence Test (RDR1) (verified 26 April 2026)